Advantages of Retrofitting and Repositioning of Prime Real Estate Assets

The iconic Express Tower is a good example of a real estate asset in a prime location that is ideally suited for advantageous repositioning or retrofitting, says Santhosh Kumar, CEO – Operations, Jones Lang LaSalle India

Even in economically challenging times, a lot of equity capital today is chasing prime real estate assets, presenting a monumental market for refurbishing and repositioning. This is especially true because prime products in prime locations are so thin on the ground. In Mumbai, the iconic Express Tower is a good example of a real estate asset in a prime location of India's financial capital that is ideally suited for advantageous repositioning.

Express Tower at Nariman Point has always had the benefit of a distinct identity. With long-standing tenants and a strong management structure in place, this commercial space edifice has no real competitors in its micro-market. The repositioning of such an asset represents a huge upside potential for all stakeholders – but, needless to say, doing so is no small task.

In the case of many older buildings, a partial or complete retrofit in terms of the building envelope, its engineering systems, seismic resistance levels and energy efficiency improvements are called for. Undertaking such initiatives on a building that is located in the bustling heart of a city’s CBD presents some logistical and tactical challenges. Apart from these aspects, there are often also various legal aspects to be tackled – such as upgrading the building’s compliance to new building or zoning codes, the upgrading of its infrastructure capacity and ensuring that accessibility is not compromised but rather improved.

Some buildings need only marginal refurbishing in order to attain revitalized market viability. Other assets, especially those in prime locations, often need a complete makeover. Some properties have the advantage of substantial land holdings, while others are located in constrained geographies. In short, properties which are good candidates for refurbishing and repositioning fall into several distinct construction categories. Each of these categories has their own level of complexity.

In the least challenging repositioning scenario, a property may need only cosmetic remodelling. This kind of undertaking represents marginal disruption to existing tenants, is relatively easy to implement and calls for minimal capital investment. Such upgrades usually involve updating of obsolete interiors in order to bring about a more contemporary appearance.

In a more complex scenario, the asset requires both an internal and external facelift, which includes all the internal aspects as well as improvement of the project's external image. This kind of repositioning is naturally more cost-intensive. Some assets have the option of using even more complex strategies such as horizontal or vertical expansion, or both simultaneously.

Finally, retrofitting and repositioning or a prime real estate asset must be done with clear objectives in mind. Various factors may conspire to prevent an older building from competing on all fronts with newer structures in the same genre.  In such cases, working towards the fulfilment of specific objectives such as improving structural viability, energy efficiency and creating a superior tenant experience is a good way to go.

CASE STUDY – UPGRADING THE EMPIRE STATE BUILDING’S SUSTAINABILITY QUOTIENT

In April 2009, world-class environmental consulting, non-profit, design and construction partners – including the Clinton Climate Initiative, Rocky Mountain Institute, Johnson Controls Inc. and Jones Lang LaSalle Used the Empire State Building as a test case and model to unveil an innovative process for analysing and retrofitting existing structures for environmental sustainability.

Adopted as core elements of a more than $500 million upgrade program at the world’s most famous office building, the program was the first comprehensive approach that integrates many steps to use energy more productively. The program's primary purpose was to reduce energy consumption by up to 3% and provide a replicable model for similar projects around the world.

At the end of the project definition process, the team analysed the steps to be taken in conjunction with other steps towards sustainability as part of the Empire State ReBuilding program within the framework of the existing USGBC LEED rating system.  Internal calculations show that the Empire State Building will be able to qualify for GOLD certification for Leadership in Energy and Environmental Design (LEED) for Existing Buildings, and ownership expressed its intention to pursue such certification.

Commercial and residential buildings account for the majority of the total carbon footprint of cities around the world. Most new buildings are built with the environment in mind, but the real key to substantial progress is reducing existing building energy consumption and carbon footprint. The innovative process adopted at the Empire State Building has developed new techniques for modelling and organizing an integrated program and offers a clear path to adoption around the world, leading to significant reductions in greenhouse gas emissions.

Along with other steps taken in recycling waste and construction debris, use of recycled materials, and green cleaning and pest control products, the model built at the Empire State Building significantly reduces energy consumption and environmental impact and allows more sustainable operations. Simultaneously, it enhances profitability and tenant comfort.

The project partners used existing and newly created modelling, measurement and projection tools in a new and repeatable process to analyse the Empire State Building and establish a full understanding of its energy use as well as its functional efficiencies and deficiencies. This provided actionable recommendations along a cost-benefit curve to increase efficiency and without harming bottom line performance.

In reviewing more than 60 optional activities, the team identified eight economically viable projects, applicable to building-wide renovations, electrical and ventilation system upgrades and tenant space overhauls that provide a significant return on investment, both environmentally and financially.

In a distressed economic climate, there is a tremendous opportunity for cities and building owners to retrofit existing buildings to save money and save energy. Not only has this project dramatically reduced the Empire State Building’s environmental impact, but it was done in a way that provides meaningful costs savings to the building as well as its tenants.